Retirement

What you should know about the two-pot retirement system

The idea behind the two-pot retirement system is to help South Africans preserve their retirement savings when changing or leaving a job. But it’s also being put in place to enable controlled access to savings in times of financial hardship.

Here’s what you should know about the two-pot retirement system which came into effect 1 September 2024.

What you need to know

Unpacking the two-pot system

The two-pot retirement system has two separate portions.

1/3 = your savings pot
When it comes into effect, your savings pot will receive a once-off boost from the vested component of your retirement fund – this is the money you’ve already saved towards your pension fund. The vested amount will be a minimum of 10% but capped at R30 000. That means – if your retirement fund has R30 000 in it, only R3 000 will be transferred to your savings pot. After that, one-third of all new contributions will go into this pot.

You’ll have access to this pot if you need the money in case of an emergency. You can withdraw:

100% of this money at any time before you retire
From it once a year and will be taxed on this amount
A minimum of R2 000; while the maximum is the full amount you have in your savings pot

2/3 = your retirement pot
Your retirement pot is made up of the other two-thirds of your contributions, which you won’t be able to touch until you’ve reached retirement age (from the age of 55).So, what does this mean in rands and cents? If, for example, you put R3 000 towards your pension, R2 000 will go to the retirement pot, and R1 000 to the savings pot. However, you won’t be able to access this R1 000 in your savings pot until the balance reaches a minimum of R2 000. Keep in mind, though, that the money you can draw from your savings pot excludes all contributions you’ve previously made, when it comes into effect.

Understand the tax implications

Any withdrawals you make from your savings component are taxable – this means it’s added to your income tax, and you’ll be taxed at whatever your tax rate is for the year.

For instance, if you earn R300 000 a year, pay 26% income tax and withdraw R10 000 from your savings pot, R2 600 will be deducted and paid to SARS.

The good news, though, is if you wait until retirement before tapping into your savings pot, the first R550 000 will be tax-free.

Try not to withdraw from your savings pot

While it might be tempting to dip into your savings, especially during tough financial times, remember that compound interest needs time to work. It’s often called the eighth wonder of the world because earning interest on the interest you have already earned is pretty much money for jam.

“Compound interest is a magical thing, but we can only see its true potential if we start now, rather than later,” explains Farzana Botha, Segment Marketing Manager at Sanlam Risk and Savings. “Starting to save now means you will have the opportunity to leverage time and compound interest to grow your money.”

You should only access your retirement savings as a carefully considered last resort. If you find yourself facing financial difficulties, speak to your financial planner, who can help you make the right decision for the long term.

Speak to your financial planner to understand how the two-pot retirement system will affect you. Together, you can work towards your retirement goals.